Property ownership rights related to domestic partnerships will vary based depending on the laws of the city and state where the couple lives. This includes the rights a partner has to property that was owned before and during the partnership.<\/p>\n\n\n\n
In most cases, it\u2019s in the best interest of couples joined in domestic partnerships to have a will that outlines how jointly owned property will be handled in the event of death. While some states will allow for the surviving domestic partner to automatically receive a percentage of interest in property, other states and cities specifically prohibit this inheritance unless it is documented in a legally binding will.<\/p>\n\n\n\n
On the surface, domestic partners go through the same mortgage pre-approval<\/a> process as any other couple. Equal Credit Opportunity laws prohibit discrimination in lending based on race, color, religion, national origin, sex, marital status, or age.<\/p>\n\n\n\n Lenders look at income, credit and assets to determine whether domestic partners qualify for a mortgage. The biggest difference in the loan process relates to how domestic partners take title, and notifying the lender of that partnership to ensure the note and deed of trust are compliant with local state and city laws related to domestic partner property rights.<\/p>\n\n\n\n The agencies that provide funding, insurance and guarantees for mortgage lending include Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Veterans Administration (VA). Each of them have updated rules and guidelines related to how domestic partnerships are handled in the respective loan programs they offer, and some of the details are provided below.<\/p>\n\n\n\n Besides wanting to confirm you have the ability to repay a mortgage, lenders want a clear path to collect on the debt in the event there is a default. That means they need to know the legal rights of anyone who is on title to the property.<\/p>\n\n\n\n The lender may need to modify or add addendums to a deed of trust involving domestic partners to protect their interest in the property and their ability to foreclose on the parties on title in the event of default or the death of one of the partners.<\/p>\n\n\n\n Because some states don\u2019t recognize domestic partnerships, the death of one of the partners could trigger an acceleration clause \u2014 meaning the lender immediately calls the entire loan due, regardless of whether the surviving partner is on title to the property or not. This includes property that was owned prior to the formation of the domestic partnership.<\/p>\n\n\n\n Also, a domestic partnership may affect the way lenders look at debt in the event the relationship ends, and the partnership is dissolved. This is similar to how lenders treat a divorce, which may involve debts that were acquired before and during the relationship, and the division of those debts after the relationship is ended.<\/p>\n\n\n\n Fannie Mae and Freddie Mac are government sponsored enterprises that purchase mortgages to promote homeownership and a healthy market of products for consumers to get home loan financing. They purchased 44% of all newly issued mortgages through the second quarter of 2018.<\/p>\n\n\n\n Conventional<\/a> lending guidelines define domestic partners as unrelated individuals who share, and intend to continue sharing a committed relationship with a borrower who signs the note. Because a domestic partnership can create legal obligations and responsibilities related to property ownership and how it is transferred between a couple, lenders have additional forms and documentation requirements to ensure the deed of trust complies with local laws.<\/p>\n\n\n\n The standard uniform residential loan application only provides three marital status options: married, unmarried and separated. You\u2019ll notice that in italics under unmarried, there is a long list of potential options which include single, divorced, widowed, civil union, domestic partnership and registered reciprocal beneficiary relationship.<\/p>\n\n\n\n For a domestic partnership, the correct box to mark is unmarried. However, to avoid jumping through hoops later in the mortgage process<\/a>, the lender needs to be notified upfront if you are borrowing as domestic partners.<\/p>\n\n\n\n The biggest difference between unmarried couples and domestic partners when it comes to homeownership is domestic partners have more legal rights and responsibilities related to mortgages and homeownership. Domestic partners are required by law to sign legal documents indicating their ownership interest in a property and their obligations to a mortgage \u2014 unmarried couples don\u2019t have any legal rights to property owned by their significant other.<\/p>\n\n\n\n Because of the legal ramifications of a domestic partnership, Fannie Mae created an addendum to the Uniform Residential Loan Application<\/a> that requires both partners answer the following questions:<\/p>\n\n\n\n Domestic partners will answer yes to this question. The next section will request additional clarification.<\/p>\n\n\n\n You\u2019ll have several options here, and you\u2019ll want to check the domestic partnership box. If you forget to notify your lender about a domestic partnership, it could create delays prior to closing, when the lender finalize the vesting with the title company, and prepares the final closing documents.<\/p>\n\n\n\n The FHA is a U.S. government agency that insures lenders who provide loans to homeowners. It is one of the most popular first time homebuyer loans, with lower minimum requirements than conventional loan programs offered by Fannie Mae and Freddie Mac.<\/p>\n\n\n\n Up until 2015, the FHA loan<\/a> definition of a family member was limited to a loan applicant\u2019s spouse, children, parents, grandparents, siblings, aunts and uncles. The definition was expanded to include domestic partners, which gives them full access to the many benefits of FHA financing.<\/p>\n\n\n\n The FHA allows flexibility to receive gifts of down payment and equity from family members, as well as allowing for family to help qualify as co-signers. Domestic partners can now qualify for some of the features reserved for family members under the prior definition.<\/p>\n\n\n\n Here are just a few of the benefits now available to domestic partners for FHA financing.<\/p>\n\n\n\n The FHA allows all of the funds for a down payment to be gifted by a family member. That means you can receive a gift from a relative of your domestic partner to purchase a home, or gift funds to your domestic partner.<\/p>\n\n\n\n The FHA allows a family member to provide a gift of equity toward the purchase of a home that they currently own. That means that you could purchase a \u201cfamily\u201d home with no down payment required your own funds.<\/p>\n\n\n\n The FHA allows for a family member to co-borrow with an applicant on an FHA mortgage without having to live there. The co-signer can gift the down payment at the same time, giving mortgage applicants more options to purchase or refinance a home.<\/p>\n\n\n\n This gives domestic partners the benefits of income from either partner\u2019s relatives to help qualify for a purchase.<\/p>\n\n\n\n The VA loan program<\/a> provides the easiest qualifying guidelines of any mortgage program offered. Active duty and military veteran borrowers can purchase a home with 0% down, and under more flexible qualifying income and credit score requirements than the FHA or conventional loan programs offer.<\/p>\n\n\n\n However, one of the major factors in how much of a down payment is required on a home loan is whether the veteran is qualifying for the loan with an unmarried co-signer. Although the recent changes to marriage law allow same-sex marriages to receive the same VA home loan benefits as opposite-sex marriages, that\u2019s not the case for domestic partnerships.<\/p>\n\n\n\n The amount of down payment a veteran makes on a VA loan depends on the amount of entitlement available based on a variety of factors including years of service, type of discharge, and branch of the military. One other factor that affects the down payment is whether the veteran is co-borrowing with a spouse or non-veteran.<\/p>\n\n\n\n Only a qualified veteran is allowed to use his or her eligibility to obtain a VA loan. A married veteran\u2019s spouse gets the benefit of the veteran\u2019s eligibility, and if the entitlement is high enough, no down payment is required. If the veteran is not married, and needs a significant other on the loan to qualify, the veteran\u2019s entitlement is cut in half, and a down payment is required.<\/p>\n\n\n\n According to VA guidelines, the VA will only recognize relationships that are organized as marriages under state law. Since domestic partnerships are not considered marriages, VA financing may look at the down payment requirement as a veteran and non-spouse non-veteran co-borrowing transaction, which would require a down payment.<\/p>\n\n\n\n There may be exceptions available if you can prove that the domestic partnership meets the state\u2019s common law marriage standards, but you\u2019ll need to check with the VA lenders, or a regional VA office in your area.<\/p>\n\n\n\n Regardless of which loan program you go with, you\u2019ll first need to decide how you will own the partner as domestic partners. As real property increases in value, how you maintain ownership can determine whether you receive any proceeds from the sale of the property, or have any obligations to the debt.<\/p>\n\n\n\n There are primarily two ways that you can take ownership to a property \u2014 as a sole owner or as a co-owner. Some states allow for specific ownership options as domestic partners, and we\u2019ll take at look at those vesting choices below.<\/p>\n\n\n\n For married couples, the most common vesting (the way a title will be held) for an individual is married as his or her sole and separate property. This gives the person on title the benefits of ownership of the property, including the right to receive any proceeds from the sale of it, and makes them solely responsible for debts that are attached to it, like mortgages or property taxes.<\/p>\n\n\n\n California is one of the states that has a specific sole ownership title vesting designation for domestic partners registered with the state as \u201ca registered domestic partners as his or her sole and separate property.\u201d The partner who is not on title is required to waive all rights to the property with a recorded document called a disclaimer deed. Again, this vesting option is for California, and may not be applicable or enforceable in other states unless state law recognizes domestic partnerships.<\/p>\n\n\n\n This type of vesting gives husband and wife or registered domestic partners equal ownership in a property. That means that all decisions regarding the sale, or mortgage financing, have to be agreed to by both owners.<\/p>\n\n\n\n Community property gives each owner the right to transfer the interest in any way they want, which means if one partner dies, the other partners doesn\u2019t receive the interest unless a separate written agreement like a will is in effect.<\/p>\n\n\n\n This is essentially the same as community property, except the words right of survivorship grant the interest of a partner that dies automatically to the surviving partner without any additional legal measures.<\/p>\n\n\n\n Joint tenancy gives all parties equal ownership. The interest is not divided, which means if one party dies, it automatically goes to the surviving party.<\/p>\n\n\n\n The difference between this is and community property, is joint tenancy is mandated by the laws of the state, so one partner cannot will his or her interest to another party \u2014 it automatically goes to the surviving partner. In community property, each partner has the right to will interest to an heir or another party upon death.<\/p>\n\n\n\n Tenancy in common allows owners in a property to choose the amount of interest they want to have in a property. Unlike joint tenancy and community property, the interest does not have to be held equally, so the parties can split it out in whatever manner they collectively agree to.<\/p>\n\n\n\n This also means that any party on title can sell, will, or lease his interest to another party.<\/p>\n\n\n\n There is no specific designation available for domestic partners when it comes to tenancy in common, since it doesn\u2019t usually apply to a domestic partnership, where committed partners are usually seeking equal interest in anything they acquire for the duration of their relationship.<\/p>\n\n\n\n There are a number of advantages to a domestic partnership when it comes to mortgage lending. Joint credit reports can be pulled, and a joint loan application can be filled out, which saves some time on the initial application.<\/p>\n\n\n\n There are also some other qualifying benefits to applying for a mortgage as domestic partners.<\/p>\n\n\n\n Because a domestic partnership is not a marriage, the IRS treats the mortgage interest tax deduction on an individual, rather than joint basis. That means each each partner is entitled to the maximum interest deduction, rather than the deduction being applied to them as a married unit.<\/p>\n\n\n\n As of 2019, the maximum deduction allowed for mortgage interest is $750,000. For a married couple, that is the maximum allowed to be deducted for a qualified primary or secondary home, which is essentially $375,000 for each member of that couple.<\/p>\n\n\n\n As domestic partners, this amount is applied to each partner separately, meaning up to $1.5 million can be deducted between the two partners, effectively giving domestic partners a tax advantage over a married couple.<\/p>\n\n\n\n There are some drawbacks to applying for mortgages as domestic partners, especially when it comes to qualifying in community property states. There are only nine community property states, and they follow the rule that all assets acquired during the marriage are considered community property.<\/p>\n\n\n\nWhy this information is important to the lender<\/h3>\n\n\n\n
Fannie Mae and Freddie Mac domestic partnership guidelines<\/h3>\n\n\n\n
Additional domestic partner information needed on a loan application<\/h3>\n\n\n\n
FHA loan changes related to domestic partners<\/h3>\n\n\n\n
Gift funds for down payments<\/h3>\n\n\n\n
Gift of equity to purchase a relative owned property<\/h3>\n\n\n\n
Cosigning on the loan<\/h3>\n\n\n\n
VA loans and domestic partners<\/h3>\n\n\n\n
The marriage guideline for VA<\/h3>\n\n\n\n
5 ways to hold property as domestic partners<\/h3>\n\n\n\n
Sole ownership<\/h3>\n\n\n\n
Community property<\/h3>\n\n\n\n
Community property with right of survivorship<\/h3>\n\n\n\n
Joint tenancy<\/h3>\n\n\n\n
Tenancy in common<\/h3>\n\n\n\n
Advantages of a domestic partnership in mortgage lending<\/h3>\n\n\n\n
Additional mortgage interest tax benefits<\/h3>\n\n\n\n
Disadvantages of domestic partnership when qualifying for a mortgage<\/h3>\n\n\n\n